Feds, States Sweep Country for Mortgage Relief Scams

more+
less-

Feds, States Sweep Country for Mortgage Relief Scams

In an enforcement sweep dubbed “Operation Mis-Modification,” the Federal Trade Commission (FTC), Consumer Financial Protection Bureau (CFPB), and 15 state Attorneys General have targeted “foreclosure relief scammers that have undertaken marketing tactics to rip off distressed homeowners across the country.”

Nine lawsuits were filed at the time of the announcement with more to come.

Each entity filed its own actions. In three federal complaints, the CFPB claimed that the defendants accepted more than $25 million in illegal advance fees before obtaining a loan modification. The defendants inflated success rates and the likelihood of obtaining a modification, the Bureau said, promising that consumers could be saved substantial sums in mortgage payments.

Consumers were misled to think they were eligible for a loan modification – or would receive relief in the near future – when the defendants had not contacted the lenders or obtained any meaningful relief, the CFPB said.

Because the defendants are law firms or associated with law firms, they also tricked borrowers into believing they would receive legal representation, the CFPB alleged. Most borrowers never spoke with an attorney or even had their files reviewed by a lawyer. For example, the Florida-based Hoffman Law Group recruited consumers to join class actions to receive loan modifications or foreclosure relief, charging an up-front fee of $6,000 with a $495 monthly maintenance fee, according to the CFPB’s complaint.

The Bureau’s suits – filed in California, Florida, and Wisconsin – allege violations of the Consumer Financial Protection Act of 2010 and/or Regulation O (formerly known as the Mortgage Assistance Relief Services Rule), which prohibits mortgage foreclosure rescue and loan modification services from collecting a fee until a homeowner has a written offer in hand from their lender or servicer that they are willing to accept. The CFPB seeks injunctions, civil fines, restitution and disgorgement of alleged ill-gotten revenues.

The FTC filed six lawsuits, charging defendants with violations of the Federal Trade Commission Act and Regulation O.

Consumers were duped by an alleged success rate of 90 percent advertised by Utah firm Danielson Law Group while CD Capital Investments reeled in consumers by claiming affiliation with the Obama Administration’s “Making Home Affordable Program” or other government entities, the FTC charged in two of its complaints. In each case, the agency requested an asset freeze and halt to the defendants’ operations; three judges have already granted such orders.

The state AGs promised to catch up to the feds with an additional 32 actions set to be filed across the country.

To read the CFPB’s press release and complaints, click here.

To read the FTC’s press release and complaints, click here.

Why it matters: As evidenced by the number of regulators involved and lawsuits filed, foreclosure relief and mortgage assistance scams are being closely monitored. In its release, the FTC noted that the six new cases bring its total to 48 actions since 2008. In addition, it will be interesting to see whether any of the state Attorneys General lawsuits will rely upon Section 1042 of Dodd-Frank, which allows a state AG to bring a civil action for violation of Dodd-Frank’s prohibition on unfair, deceptive or abusive acts or practices (UDAAP).

- See more at: http://www.manatt.com/Financial_Services_Law/FDIC_Clarifies_Supervision_of_Bank/Third-Party_Payment_Processor_Relationships.aspx?search=1#Article3

In an enforcement sweep dubbed “Operation Mis-Modification,” the Federal Trade Commission (FTC), Consumer Financial Protection Bureau (CFPB), and 15 state Attorneys General have targeted “foreclosure relief scammers that have undertaken marketing tactics to rip off distressed homeowners across the country.”

Nine lawsuits were filed at the time of the announcement with more to come.

Each entity filed its own actions. In three federal complaints, the CFPB claimed that the defendants accepted more than $25 million in illegal advance fees before obtaining a loan modification. The defendants inflated success rates and the likelihood of obtaining a modification, the Bureau said, promising that consumers could be saved substantial sums in mortgage payments.

Consumers were misled to think they were eligible for a loan modification – or would receive relief in the near future – when the defendants had not contacted the lenders or obtained any meaningful relief, the CFPB said.

Because the defendants are law firms or associated with law firms, they also tricked borrowers into believing they would receive legal representation, the CFPB alleged. Most borrowers never spoke with an attorney or even had their files reviewed by a lawyer. For example, the Florida-based Hoffman Law Group recruited consumers to join class actions to receive loan modifications or foreclosure relief, charging an up-front fee of $6,000 with a $495 monthly maintenance fee, according to the CFPB’s complaint.

The Bureau’s suits – filed in California, Florida, and Wisconsin – allege violations of the Consumer Financial Protection Act of 2010 and/or Regulation O (formerly known as the Mortgage Assistance Relief Services Rule), which prohibits mortgage foreclosure rescue and loan modification services from collecting a fee until a homeowner has a written offer in hand from their lender or servicer that they are willing to accept. The CFPB seeks injunctions, civil fines, restitution and disgorgement of alleged ill-gotten revenues.

The FTC filed six lawsuits, charging defendants with violations of the Federal Trade Commission Act and Regulation O.

Consumers were duped by an alleged success rate of 90 percent advertised by Utah firm Danielson Law Group while CD Capital Investments reeled in consumers by claiming affiliation with the Obama Administration’s “Making Home Affordable Program” or other government entities, the FTC charged in two of its complaints. In each case, the agency requested an asset freeze and halt to the defendants’ operations; three judges have already granted such orders.

The state AGs promised to catch up to the feds with an additional 32 actions set to be filed across the country.

To read the CFPB’s press release and complaints, click here.

To read the FTC’s press release and complaints, click here.

Why it matters: As evidenced by the number of regulators involved and lawsuits filed, foreclosure relief and mortgage assistance scams are being closely monitored. In its release, the FTC noted that the six new cases bring its total to 48 actions since 2008. In addition, it will be interesting to see whether any of the state Attorneys General lawsuits will rely upon Section 1042 of Dodd-Frank, which allows a state AG to bring a civil action for violation of Dodd-Frank’s prohibition on unfair, deceptive or abusive acts or practices (UDAAP).

 

 

Topics:  Attorney Generals, CFPB, Debt-Relief Industry, Enforcement, Foreclosure, Investigations, Mortgages

Published In: Antitrust & Trade Regulation Updates, Business Torts Updates, Consumer Protection Updates, Finance & Banking Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Manatt, Phelps & Phillips, LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »